Hmmmmmm

My lantern still works even though it is inside my small chest - bug?

Can't say I've come across that before, but I hardly pay attention. It could very well be a bug.

If fluids can leak out of chests, why not light?

I suppose that is true, but I didn't notice any loss of illumination which is probably a bug.

How the lantern manages to illuminate your surroundings while it's in your "backpack" is its own problem. I guess you could just interpret it as having it strapped to your belt or something.

This is true. It would be pretty lame if the lantern had to be wielded by the player character all the time.

But why wouldn't you wield lanterns?

Maybe to bash a kobold over the head. Do they make effective weapons?

Now that they explode on breaking, that sounds like a good way to get an unarmoured limb or a head burnt off.

Edit: OK, I went into wizmode and actually tested this. Aside: are item frequencies different in wizmode? I found an unbroken helmet of understanding on UT1!
As for wielded items breaking, I tried one gas grenade and two lanterns, with no other equipment of any kind. The gas grenade broke after a fighting just a few monsters with it. The lanterns were much more sturdy. I died about 10 times more often than than a wielded lantern broke. The two monsters which succeeded in breaking the lanterns were a greater carnivorous plant and a kobold with a mace, when I blocked an attack. The kobold's attack killed me (because of the mace damage, not the lantern's explosion). I forget whether the carnivorous plant's attack killed me. In any case, both explosions set my scrolls of wishing alight. I didn't carry any wands, so I don't know if the explosion was powerful enough to break them.
In conclusion, lanterns are terrible weapons, but they're less likely to kill you than hedgehogs.

SPOILER ALERT. Click here to see text.

Lanterns actually make for pretty ok shields due to their roundness value, but basically any actual weapon or shield would be a better idea. There's not much reason to use a lantern because it'll level your Misc. weapon skill, which won't be handy further into the game.

Light gloves (leather/cloth materials) are actually surprisingly decent weapons, even up to and including killing the enner beast in melee. They do kind of fizzle out once armour starts to be a thing.

could be light from some other source e.g. mutant bunny blood dripping on your weapon.